Sustainable fashion sourcing at scale: ambitions to actions

According to McKinsey’s recent 2019 survey on the fashion industry, sustainable sourcing at scale is the industry’s highest priority moving forward. This is perhaps unsurprising with consumer and investor expectations on responsible business practices rising, regulations getting tighter, and civil society becoming more sophisticated at pushing for reform.

There is also a strong commercial incentive for sustainable sourcing at scale. Truly sustainable supply chains are more resilient, more profitable and less risky. They can fundamentally improve the lives of the millions of vulnerable people who rely on fashion supply chains for their livelihood.

However, in our experience at Kumi, most companies are a long way of realising the stated objectives of the chief procurement officers interviewed by McKinsey.

Lack of common language on sustainability

The McKinsey report notes that “the industry lacks a common language on sustainable sourcing, let alone a shared set of standards.” This means that sustainability to one company may not mean the same thing to another. In some companies, sourcing organic cotton is the primary aim. In others, sustainability covers a full swathe of labour rights and environmental issues.

However, when it comes to sustainable supply chains there is in fact a common language and framework, one that has been developed and agreed by industry, governments and civil society – the framework set out in the OECD Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector. It involves:

• Ensuring corporate policies commit the company to action on responsible business practice, that there is accountability for these policies at board level and that effective management processes are established for due diligence.
• Undertaking due diligence to identify and prioritise social and environmental risks in the company’s operations and supply chain.
• Eliminating, managing and mitigating risks through targeted, prioritised and proactive interventions.
• Monitoring the effectiveness of due diligence actions, reporting publicly on progress and facilitating remediation.

It is worth noting that the supply chain due diligence framework defined by the OECD is increasingly likely to be incorporated into regulation in the future. We understand that several major European economies having informally ‘given notice’ that a number of the voluntary fashion and textiles due diligence initiatives that are in place are the ‘last chance’ for the fashion sector to avoid facing regulatory due diligence requirements.

Increased transparency is good, total transparency is a long way off

In the past few years, companies have become increasingly more transparent about where they source their products from. Their success has led to an increased number of published factory lists, particularly amongst high-street fashion brands.

What these lists have shown are expansive and complex Tier 1 supply chains. In some instances, over 1,000 different sites in over 25 countries are listed. Further, they show that companies have good knowledge of where final manufacturing processes are occurring.

However, we know from both some companies’ public disclosures and private discussions with others that often Tier 1 is where, or close to where, a company’s knowledge about its supply chain ends. This opacity is further compounded once components such as zippers, buttons or threads are bought in from other companies. Where are these items made and under what conditions? Few companies can answer this with confidence at present.

At Kumi we know from experience that many companies may be utilising products that are directly linked to serious issues, just one example being child labour in mica production (mica is widely used in cosmetics; many fashion brands have a cosmetics product line).

Reactive approaches remain the norm

Fashion companies continue to rely on predominantly reactive approaches to risk and supply chain management.

Taking the example of social compliance audits, still used today as the backbone of their sustainable supply chain efforts by many companies. The reality is audits are highly ineffectual at foreshadowing problems in the supply chain. Even the largest scale audit programmes can only offer companies a snapshot of life in their supply chains. Follow-ups or corrective actions address problems that have already happened, not problems that may happen in the future.
This is compounded by the preponderance of poor-quality audits that offer little true insights into supply chain challenges. Companies are therefore basing a vast majority of their risk management and future decisions on interventions on poor quality fixed in time insights.

One observation that strikes us at Kumi – given that we work across the mining and metals and agricultural sectors as well as the fashion sector – is how embedded the reliance on audits is within the fashion sector. Even though the limitations of social audits are becoming increasingly recognised, fashion brands continue to stick with the same overall approach to risk and compliance that they have been pursuing for years.

A key reason for this is that many companies allocate responsibility for addressing supply chain sustainability risks to the ‘ethical trade’ function, who in turn are measured by metrics related to audits. If audits are being delivered, risks are deemed to be being controlled.

If chief procurement officers really do believe sustainable supply chains are the highest priority for their industry, one important step they can take is to have a fresh look at their companies’ approach to risk management and consider whether existing approaches can deliver the outcomes that are being sought.

Concluding remarks

The McKinsey report is timely and exposes a key challenge for the fashion industry: how to become truly sustainable. There are no one-size-fits-all answers, but there are ways to begin addressing that question. At Kumi we believe that effective supply chain due diligence is a key to unlocking large aspects of this puzzle. It is only by really understanding its supply chain that a company can then start taking steps to implement sustainable sourcing at scale.

Kumi was created specifically to help companies on this particular journey. Do get in touch if you’d like to discuss how we can help you.